Question

1. You plan to buy an Audi A8 on your 26th birthday. You have priced these cars and found that they currently sell for $85,100. You believe that the price will increase by 8% per year until you are ready to buy. You can presently invest to earn 10% annually. If you have just turned 20 years old, how much must you invest per year to be able to purchase the Audi according to your plans?

2.You have won a game show prize of a trip across Europe in one year valued at $30,000. If instead, you are able to take the present value of the trip in cash, how much cash would you want if the rate you can earn is 6% annually, compounded quarterly?

3. The present value (at n=0) of the following cash flow stream is $5,979.04 when discounted at 12% annually. That stream consists of payments made at the end of each of four periods. One of the payments, the second one, is missing. The others are $1,000 at n=1, $2,000 at n=3, and $2,000 at n=4. What is the value of the missing cash flow?

4. A firm's dividend per share grew from $1.00 to $1.50 in five years. What was its annual growth rate during that period?

Answer 1